These three private companies made headlines this month with sky high valuations.

Ten years ago, companies worth this much on paper would have long since tapped the public markets or agreed to be acquired.

Now, venture-backed firms like Facebook Inc., Groupon and Twitter are staying private and independent, thanks in part to a rapidly evolving “shadow market” that is getting an increasing share of the spotlight.

Founders and investors are trading their shares behind the scenes, selling out to latecomers eager for a share of hot Internet properties. In previous tech-investing climates, shareholders rarely looked to give up their stake in hot companies.

Venture capital is a relatively small slice of the investing world, and largely unregulated.But as the secondary market gains acknowledgment as an integral part of the asset class, many participants fear a feeding frenzy there will bring down regulators, bottling it up in much the same way regulation has narrowed the IPO window.

“Venture firms are selling their stock early – and that had never happened before for well-functioning companies,” said David Aronoff, a founding general partner at Boston’s Flybridge Capital Partners.

He pointed to delays in liquidity and constraints on IPO options for venture-backed companies. “What it’s becoming is a shadow public market,” Aronoff said.

The secondary market was long a back door for the venture industry, reserved for a venture firm in distress, or a founder whose daughter was going to college. That’s changed.

Paper valuations of private companies are up 54 percent this year, according to a report released the week of Dec. 13 by Nyppex, a company that handles secondary market transactions.

Now, secondary market advisory firms – like Nyppex, of Rye Brook, N.Y., and West Coast competitors EB Exchange Funds and SecondMarket – are beginning to issue press releases, and that’s what has some players looking over their shoulders for regulators.

Firms like these are finding sellers among a new generation of entrepreneurs that has gotten wise to the secondary market, said Crispin Miller, head of the due diligence practice at Sema4 Inc. With dual headquarters in Methuen and London, Sema4 has long handled secondary market deals that will never appear on Businesswire.

“Even for the first-time entrepreneur, there’s a lot of institutional knowledge around of people who have done it two three or four times,” Miller said. “These guys aren’t stupid. They’re thinking, ‘I’m going to cover my tush here.’”

EB Exchange has raised a fund that is a special-purpose vehicle, dedicated exclusively to secondary market investing in Facebook.

Founder Larry Albukerk said in Boston, as in San Francisco, “Any late-stage company doing north of $50 million likely has secondary activity.”Among buyers of such assets, wealthy individuals have joined late-stage VCs and secondary funds, Albukerk said. To buy, they must meet an SEC threshold of $1 million net worth and $200,000 in individual annual income.

Another change of the past few years is, VCs are more open to the idea.
“It was such a long time to liquidity that VCs kind of threw in the towel,” Albekurk said. “Traditionally they said we want (founders) 100 percent (invested in the company), but I think VCs have changed a lot. There’s a lot more entrepreneurs who are VCs now. They were in those shoes.”

Despite such high-profile examples, selling out early remains stigmatic for many founders. Several declined to talk about their activity in the secondary market for this article.

Stigma or not, entrepreneurs are increasingly curious about their options for early liquidity, said Evan Brown, a business analyst at J. Robert Scott. The Fidelity-owned head-hunting firm has long surveyed executives and founders at venture-backed companies to determine average compensation.

As part of that study, J. Robert Scott in December added a 25-question survey aiming to suss out how much founders are earning off secondary trades, and how. Brown said so far, about 10 percent of respondents say they’ve done deals in the secondary market. 60 percent of those who haven’t said they considered it, but weren’t sure who could broker the deal, or how they would negotiate it with their board.

“Ten years ago, if someone wanted to sell their stock it was considered a red flag,” Brown said. “Now what we’re hearing from a lot of folks is, you’ve got a CEO who on paper is worth $20 million but he makes $200,000 a year and he’s been with this company for nine years: If you let him take $2 million off the table it aligns his interests even more (with venture investors).”